The Economic Community of West African States (ECOWAS) has agreed to adopt a single currency called the “ECO” in 2020 for all 15 member countries. This relies on the satisfaction of four conditions originally articulated by Robert Mundell:
- A large and integrated labor market that facilitates the easy flow of workers between countries
- Price and wage flexibility to even the regional variations
- A central mechanism for fiscal transfers among nations to mitigate imbalances
- Similar business cycles among member nations
Based on these principles, a few stipulations have been set for countries to gain acceptance into this currency union. However, only some of the ECOWAS countries currently fulfill the necessary requirements.
Moreover, the presence of the CFA franc in Francophone countries suggests that France may oppose this currency union. Additionally, the CFA franc has given the member countries lower interest rates and exchange rate security, so convincing those countries to switch to an untested currency union may prove difficult.
Though this plan has potential for spurring regional development and providing an example to similar unions across Africa, the path forward will require a concerted effort on the part of economic planners across the region to meet the preconditions.
Read more about this from Project Syndicate.